High-speed trader Virtu is getting hammered despite gangbuster earnings

A Specialist trader for Virtu Financial works at a booth on the floor of the New York Stock Exchange April 16, 2015.

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A Specialist trader for Virtu Financial works at a booth on the floor of the New York Stock Exchange April 16, 2015.
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REUTERS/Brendan McDermid

  • High-speed stock trader Virtu Financial reported gangbuster results Friday, beating Wall Street’s estimates by a mile.
  • Still, the stock got hammered during Friday’s trade, falling close to 10% soon after the markets opened.
  • The firm, which reported a net income increase of 1,845%, reported earnings of $1.86 per share. That’s above Wall Street’s estimate of $0.61.
  • A return of volumes and volatility to the markets was behind the impressive performance, chief executive Doug Cifu said.

Virtu Financial, the market making firm, reported eye-popping results on Friday for the first quarter of 2018, a period marked by a return of volatility and volume to the markets.

But the stock took a beating during Friday’s trade. Virtu fell close to 10%, and at last check was trading at $33.70, down 6.2%.

It’s not entirely clear what was behind the selling pressure. Investors could be taking some gains after a strong run up over the last six months, according to analysts. Over that period, Virtu has soared 153%.

“Stock has really run up going into the quarter and investors don’t know the magnitude of the upside going forward in April, though the volatility environment has remained friendly,” Richard Repetto, an analyst at Sandler O’Neill, told Business Insider in an email.

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MI

The New York-based firm, which reported earnings of $1.86 a share, said its net income increased 1,875%. Its total revenues popped 453% to $815 million. Its adjusted EPS was $0.76, a record since it became a public company.

The acquisition of KCG, the trading firm it bought in 2017, gave its numbers a lift as did favorable market conditions, according to chief executive Doug Cifu.

“Our continued successful integration enabled this quarter’s outstanding performance in this favorable environment,” Cifu said. “The first quarter of 2018 saw the return of volume and volatility.”

After spending more than a year in the doldrums, Wall Street saw anxiety storm the markets in the first quarter of 2018. Notably, the Cboe Volatility Index (VIX), a gauge for market anxiety, climbed over 50 for the first time since August 2015 in early February.

As liquidity providers, trading firms like Virtu are scanning the markets for opportunities in which buyers and sellers aren’t matched up. But when volatility is too low, like it was for much of 2017 and early 2018, those opportunities are hard to come by because there are fewer price swings.

To be sure, the success of its merger with KCG should not be underscored. As noted by Repetto in a note Friday morning, “VIRT realized $56 million in synergies realized in 1Q18, resulting in the company being nearly 90% towards the midpoint of the target $250-$275 million cost savings for 2018.”

Notably, the firm was able to bring down the headcount of the combined Virtu-KCG from about 1,200 staff to 536.

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VIRTU

This post has been updated from its original form to reflect a drop in Virtu’s stock after the market opened.